DHI Group, Inc. (NYSE:DHX) Q4 2022 Earnings Call Transcript
DHI Group, Inc. (NYSE:DHX) Q4 2022 Earnings Call Transcript February 7, 2023
Operator: Hello and welcome to the DHI Group's Fourth Quarter and Full Year 2022 Financial Results Conference Call. All participants' will be in listen-only mode. Please note, this event is being recorded. I would now like to hand the conference over to Todd Kehrli of MKR Investor Relations. Todd, please go ahead.
Todd Kehrli: Thank you, operator. Good afternoon, and welcome to DHI Group's fiscal 2022 fourth quarter and year-end earnings conference call. With me on today's call are DHI's CEO, Art Zeile; and Chief Financial Officer, Kevin Bostick. Before I turn the call over to Art, I'd like to cover a few quick items. This afternoon, DHI issued a press release announcing its fiscal 2022 fourth quarter and full year 2022 financial results. The release is available on the company's website at DHI Group, Inc. com. This call is being broadcast live over the Internet for all interested parties, and the webcast will be archived on the Investor Relations page of the company's website. I want to remind everyone that during today's call, management will make forward-looking statements that involve risks and uncertainties.
Please note that except for the historical information statements on today's call may constitute forward- looking statements within the meaning of the federal securities laws. These forward-looking statements reflect DHI Management's current views concerning future events and financial performance. and are subject to risks and uncertainties, and actual results may differ materially from the outcomes contained in any forward-looking statements. Factors that could cause these forward-looking statements to differ from actual results include the risks and uncertainties discussed in the company's periodic reports on Form 10-K and 10-Q and other filings with the Securities and Exchange Commission. DHI undertakes no obligation to update or revise any forward-looking statements.
Lastly, during today's call, Management will be referring to specific financial measures, including adjusted EBITDA, adjusted EBITDA margin and adjusted diluted earnings per share that are not prepared in accordance with U.S. GAAP. Information about and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings release, a copy of which you can find on our website at dhigroupinc.com in the Investor Relations section. With that, I'll now turn the call over to Art Zeile, CEO of DHI Group.
Art Zeile: Thank you, Todd. Good afternoon, everyone, and welcome to our fiscal 2022 fourth quarter and year-end earnings conference call. Thank you for joining us today. We are pleased to report that we delivered solid revenue growth in both our fourth quarter and full year as employers continue to use our subscription-based offering to find, attract, engage and hire the highest quality tech professionals. With a significant supply-demand gap created by the large number of tech job openings, more employers need access to our growing community of 6.5 million tech candidates. There continues to be strong demand for technologists across all industries, even in this difficult environment as they ramp their technology initiatives.
December represented the 25th consecutive month of tech employment expansion in the United States, and employers posted job openings for over 833,000 tech jobs during the fourth quarter, according to Information Technology Trade Group, CompTIA. Notably, this is a deceleration from the 1.6 million posted job openings in the second quarter of the year. Nevertheless, because the unemployment rate for technologists dropped in December to 1.8%, there remains two job openings for every one tech worker looking for employment. And 72% of all laid-off tech workers have found new jobs within three months according to a recent study by Revelio Labs, a workforce data provider. Our two subscription-based offerings, Dice and ClearanceJobs are both tech-focused career marketplaces that attract the highest quality tech professionals.
Dice has over 5.1 million technologists, while ClearanceJobs has 1.4 million tech professionals with government clearances, and we continue to grow the number of technologists on both marketplaces each quarter. Our marketplaces are solely focused on serving the technology workforce where candidates are measured by their technology skills that they've acquired over their careers and not their job titles. Both marketplaces use our proprietary tech skills mapping taxonomy and search algorithms to enable their subscribers to find and engage the best tech candidates for their open positions based on the specific skills requested providing a competitive advantage for both Dice and ClearanceJobs. Now let me dig into the performance of our two brands during the fourth quarter and what we see ahead for each in 2023.
Starting with Dice, in the later stage of the fourth quarter, we began to see the impact of a lengthening sales cycle on our Dice new business bookings as many companies are starting the new year with a very cautious spending outlook. These headwinds contributed to Dice bookings being down 1% year-over-year during the quarter. Our existing customer relationships were less affected with Dice revenue renewal and retention rates remaining strong at 94% and 107%. Even with these headwinds, Dice's revenue for the quarter increased 16% year-over-year. Dice commercial accounts continues to be our most significant growth opportunity with now over 100,000 companies in the United States, meeting our ideal customer criteria. The staffing and recruiting industry continues to be a significant growth opportunity for Dice as well, with approximately 18,000 staffing and recruiting firms operating in the United States.
Today, we service just a fraction of them, leaving us with a significant opportunity for growth as we expand into this market. Dice added several new clients in the fourth quarter, including UPS, Intelsat in the US Senate Sergeant at Arms. As we described in last quarter's earnings call, we have made a concentrated effort to focus on larger and more stable clients given the state of the economy. This focus on larger, more stable customers coupled with the lengthening of new business sales cycles as well as customer churn resulted in our fourth quarter Dice customer count being slightly less than last quarter. The clients that churned during the quarter were almost entirely less than $10,000 in annual contract value, consistent with our thesis that smaller customers are less stable during times of economic uncertainty.
We are seeing our larger, more stable customers renew and increase their contract values as evidenced by our strong revenue renewal and retention rates. Additionally, our average Dice annual contract value increased 11% year-over-year in the fourth quarter. Now let's turn out our attention to CJ. We have two substantial growth opportunities with our ClearanceJobs brand that are not being impacted by the current state of the economy. The first is the government contractor market. We currently have the second growth opportunity is selling CJ's subscription offering directly to the multitude of U.S. government agencies that are in need of highly qualified technologists and are competing against private sector for these candidates. We continue to advance our relationship with government contractors and U.S. government agencies and added several new clients during the quarter, including the National Reconnaissance Office and United Launch Alliance.
During the fourth quarter, our bookings for CJ grew 17% year-over-year, and our revenue renewal and retention rates were excellent, coming in at 98% and 117%. All of this resulted in our CJ revenue increasing 23% year-over- year for the quarter. Now let's look at our expectations for 2023. As I discussed on last quarter's conference call, we have several levers for driving continued double-digit sales growth this year. The first lever is to continue executing on our baseline growth strategy, which includes selling multiyear contracts that include year-over-year price increases and contracts with auto renewal clauses. Ending 2022, approximately 20% of our customers had contracts for two or more years. And 94% had a contract with an auto renewal clause, which includes an annual price increase.
These automatic price increases are a predictable driver of continued sustainable revenue growth. Our second lever to drive growth is our increased focus on year one client renewals. We focus on ensuring new customers receive great return on investment in their first year. This is critical as renewal rates are significantly higher if a customer stays with DHI longer than one year. During 2022, we created a new account special handling group and generated a large uptick in our first year customer renewal and retention rates, which has laid the foundation for continued revenue growth in 2023. Our third lever for growth focuses on our continued evolution to create holistic solutions for our clients. A revenue stream we expect to grow in 2023 is corporate branding, allowing companies to tell the story of their mission, values and culture through video, images and text because technology candidates are in such high demand, they move for a new opportunity only if it has the right combination of compensation, technology stack and culture.
During the quarter, we launched the CJ company page, a new incremental invoice line item added to a client's CJ subscription with an entry list price of $10,000 per year. We have already sold many of these packages despite releasing this capability at the end of the fourth quarter. We anticipate delivering an equivalent offering for Dice by the end of the second quarter. The fourth lever for growth is to focus on our new business efforts on the specific industry verticals that have the highest tech hiring needs right now. We use workforce data provider Lightcast, fact the exact number of new tech job openings by company each month. We know that the aerospace defense consulting, banking finance and health care industries have the highest number of postings currently.
The elevated tech openings in the aerospace defense sector is a clear result of the U.S. signing the largest defense budget increase in decades late last year. In order to take advantage of this tailwind, we have already transferred several of our Dice new business team members to our equivalent ClearanceJobs team to focus on this significant opportunity. In addition to growing bookings and revenue in 2023, we will continue to focus on expanding our technologist community through our brand advertising campaigns. In the fourth quarter, these campaigns drove roughly 44,000 new Dice members each month to our community, and we generated a 43% lift in traffic to our site over the past year. In the fourth quarter, the Dice product team delivered a completely revamped technologist onboarding experience that makes it even easier for a new Dice candidate to complete a profile and become a member.
Adding tech professionals for our marketplaces attracts more employers, making our platforms in turn, more valuable to tech professionals, enhancing the two sided marketplace. In summary, despite the challenging macroeconomic environment, demand for technologists continues to be strong. And with our industry-leading offerings in our large target markets for both Dice and CJ we have several levers to drive continued bookings and revenue growth in 2023 and well into the future. On that note, let me turn the call over to Kevin, who will take you through our financials, and then we'll take any questions you may have. Kevin?
Photo by Campaign Creators on Unsplash
Kevin Bostick: Thank you, Art, and good afternoon, everyone. Let me go into a bit more detail on our fourth quarter financial results. We reported a total revenue of $39.8 million which was up 3% sequentially and 18% year-over-year. Total bookings for the quarter were $37.7 million, up 4% year-over-year. Dice revenue was $28.2 million, which was up 3% on a sequential basis and 16% year-over-year. Dice bookings were $25.7 million down 1% year-over-year. We ended the quarter with 6,311 Dice recruitment package customers, which is down 2% from last quarter and up 5% year-over-year. Our average annual revenue per Dice recruitment package customer was up 3% sequentially and 11% year-over-year to $15,384. Approximately 85% of Dice's revenue is recurring and comes from annual or multiyear contracts.
Our Dice revenue renewal and retention rates remained strong during the quarter with the revenue renewal rate at 94% and the retention rate at 107%. These metrics continue to demonstrate the value of the Dice products in recruiting technology professionals. ClearanceJobs revenue was $11.6 million, up 4% sequentially and 23% year-over-year. Bookings for CJ were $12.1 million, up 17% year-over-year. We ended the fourth quarter with 2,064 CJ recruitment package customers, which is up 2% from the third quarter and 10% year-over-year. Our average annual revenue for CJ recruitment package customer was up 3% over last quarter and up 11% year-over-year to $19,872. Approximately 90% of CJ revenue is recurring and comes from annual contracts. For the quarter, our CJ revenue renewal rate was 98% and CJ's retention rate was strong at 117%.
These outstanding renewal metrics demonstrate the continued value CJ delivers in the recruitment of cleared professionals. Turning to operating expenses. Fourth quarter operating expenses were $39 million compared to $33.6 million in the year ago quarter, as we continue to invest in our sales team as well as third-party marketing spend to drive increases in marketing qualified leads. In addition, we continued to invest in our broader brand awareness campaigns to drive technologist's growth on our platform. For the quarter, we had income tax expense of $358,000 on income before taxes of $2.7 million. Our tax rate of 13% for the quarter differed from our normal expected rate of 25% due to the reversal of liabilities for uncertain tax positions as federal and state statutes expired.
We've recorded net income of $2.4 million or $0.05 per diluted share, which includes the positive impact of $2.1 million of proceeds from a legal settlement associated with the business DHI divested in 2018. Net income for the prior year quarter was $232,000 or $0.00 per diluted share. Adjusted diluted earnings per share for the quarter was $0.01 compared to $0.00 for the prior year quarter. Diluted shares outstanding for the quarter were 46.1 million compared to 48.7 million in the prior year quarter. Adjusted EBITDA for the fourth quarter was $8.1 million, a margin of 20% compared to $7.1 million or a margin of 21% in the fourth quarter a year ago. We generated $7.3 million of operating cash flow in the fourth quarter compared to $3 million in the prior year quarter.
Our free cash flow in the fourth quarter which represents operating cash flow less capital expenditures was $2.8 million compared to negative free cash flow of $642,000 in the year ago quarter. From a liquidity perspective, at the end of the quarter, we had $3 million in cash and total debt outstanding of $30 million under our $100 million revolver. Deferred revenue at the end of the quarter was $50.9 million, up 10% from the fourth quarter of last year. Our total committed contract backlog at the end of the quarter was $117.3 million, which was up 27% from the end of the fourth quarter last year. Short-term backlog was $91.5 million at the end of the fourth quarter an increase of $12.5 million or 16% year-over-year. Long-term backlog that is revenue to be recognized in 13 or more months was $25.8 million at the end of the quarter, an increase of $12.1 million or 88% from the prior year.
During the quarter, under our share repurchase program, we've repurchased approximately 640,000 shares for $3.6 million, an average price of $5.59 per share. As a reminder, our current share buyback program includes a $15 million authorization, which expires this month. Of the $15 million authorized, $2.1 million remained available under the program at the end of the quarter. Looking forward, for the full year 2023, we expect our total revenue to grow in the low double-digit percentage range for each quarter throughout the year. From a profitability perspective, we expect to maintain adjusted EBITDA margins at or near 20%, with margins expected to expand over the next 6 to 12 months. We are not limiting our investment in sales and marketing in the near term, but we'll manage our hiring and expense structure accordingly during this challenging environment.
We remain focused on driving long-term sustainable value creation and want to be well positioned from a customer acquisition perspective when the economy begins to recover. To wrap up, we are very pleased to see our retention metrics remain strong, driving our revenue growth in 2023. Our customers recognize the value of our platform and their need to stay on it to be successful. Additionally, the fact that we continue to add a significant number of new technologists each quarter to our marketplace further validates our offering and adds value to the marketplaces we have built. And with that, let me turn the call back to Art.
Art Zeile: Thank you, Kevin. I'd like to close by once again thanking all of our employees for their hard work this past year. It is a pleasure to be part of such a great team. With that, we're happy to take your questions.
See also 15 Most Valuable Retail Companies in the World and 25 Smartest Companies To Invest In.
To continue reading the Q&A session, please click here.
